Steffy: Let international competition take flight at Hobby

Updated 11:32 pm, Sunday, April 8, 2012

More than three decades after competition came to the airline industry, some of the biggest carriers still struggle to grasp the concept.

United Airlines, for example, wants the city of Houston to block Dallas-based Southwest Airlines' plans to begin flying internationally from Houston in 2015.

The move would require adding customs facilities at Hobby Airport, a $100 million project for which Southwest would bear the cost.

"It's our business risk, and it brings competition," Southwest Chief Executive Gary Kelly told the Chronicle's editorial board in one of two meetings between officials for both carriers and this newspaper last week. "We're basically applying for a building permit."

Of course, it's much more than that. As a result of Southwest's request, Houston has been thrust to the forefront of the next big airline showdown over market share.

Southwest, having frustrated the so-called legacy carriers in the most lucrative domestic markets, now has its sights on international routes, the only remaining cash cow for carriers like United.

United is responding the way the legacy airlines - those rooted in the business decades before deregulation - typically do: by clinging to the past.

Former Continental Chairman and Chief Executive Gordon Bethune argued that Bush Intercontinental Airport's very name implies international travel. The plan when it was built, he said, was that it would be Houston's hub for international flights.

The airport began operations in 1969, almost a decade before deregulation changed the industry. Whatever may have been planned, the purpose of deregulation was to turn that function over to the market.

It's a concept that the legacy carriers have struggled with ever since. In more than an hour of discussion, United's team questioned Southwest's growth assumptions in Houston, argued that the local traffic here doesn't justify the air service we already have and talked about the intricacies of its hub-and-spoke system.

Southwest on the hook

Southwest's economic numbers may indeed be the stuff of economic development puffery. Projections of jobs and passenger traffic rarely pan out as companies predict.

But if it's wrong, Southwest will pay for its mistake. It isn't the responsibility of the city or local passengers to make United's hub structure viable.

United argues that if Southwest succeeds, Houston will have too many flights concentrated on too few routes, forcing United and its global partners to pull down nonstop flights to faraway destinations.

"We firmly believe that we will have to shrink the airport," said Greg Hart, United's senior vice president for network operations.

But more carriers flying more flights means the routes most people want to fly will be better served and priced more competitively. Those that don't attract many passengers will either become more expensive or be scrapped, at least as nonstops.

In most industries, that's called market efficiency. In Airlineland, it prompts a cry for help, a plea to local governments to protect the country's biggest airline from market forces, even if it means passengers must pay higher fares on the most heavily traveled routes.

The story in Dallas

The last time one city tried to develop two airports, it was in Dallas, and Southwest was at the center of that battle, too. Then the battle was over domestic flights, and at the request of the big airlines, the federal government intervened to limit Southwest's flights out of Love Field. The larger carriers hoped to strangle the upstart in its crib.

Instead, Southwest flourished. It took the fight to its bigger rivals around the country. Those that are still flying have all, at some point, filed bankruptcy at least once since then.

Continental, and now United, built Houston's big airport into a fortress hub, one in which it controls most of the traffic to key markets such as Latin America, and as a result it can raise fares accordingly.

In its response to Southwest's latest challenge, United demonstrates the legacy of legacy carriers by trotting out the same tired arguments used for 35 years to cling to the vestiges of a monopolistic past.

The city should grant Southwest its "building permit" and let the market - in this case, passengers - decide the winner.

Loren Steffy, loren.steffy@chron.com, is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Follow him online at blog.chron.com/lorensteffy, www.facebook.com/LorenSteffypage and twitter.com/lsteffy.